South African Formula One Grand Prix

SOUTH AFRICAN FORMULA ONE GRAND PRIX: A DREAM OR NIGHTMARE by C.S. BESSIT SHORT DISSERTATION submitted in partial fulfillment of the requirements for the degree MAGISTER COMMERCII in BUSINESS MANAGEMENT in the FACULTY OF MANAGEMENT at UNIVERSITY OF JOHANNESBURG STUDY LEADER: MR S.M. NCHABALENG MAY 2006 ACKNOWLEDGEMENTS The compilation of this paper would not have been possible without the generous assistance of the following individuals: Rachel Julius, my personal assistant, for her assistance in the data collection; David Gant, CEO of the SA F1 Bid Company, for making time available for a personal interview; Simon Nchabeleng, my study leader, for his patience and guidance; Claudette Shiela Thorne, the love of my life, for her continued inspiration; Family and Friends, for their continued support and interest; and Bibliography list of authors and sources of information, for their insightful work. EXECUTIVE SUMMARY In 2004 a group of South African based companies submitted a bid to the Formula One Management to host a South African Formula One Grand Prix, from 2009 in Cape Town. The group approached the government to establish a public-private partnership, due to the: • escalating hosting and infrastruture development cost, resulting in very few Formula One Grand Prix host countries undertaking hosting without government involvement; and • believe that the economic benefits of hosting the event would stretch further than the business realm of its members, in particulary in the toursim industry. A literature review of the hallmark sporting events revealed that sport has become a major business industry and a perceived tool for improving the economies of host countries, regions or cities. This has empowered the owners of mega sporting events to generate bidding wars amongst prospective host countries. Paying the price has commonly led local event organisers to motivate the allocation of public funding, emphasising the indirect economic benefits that the event will generate. This motivation is though seldom accompanied by a detailed and independent economic impact assessment, to substantiate the claimed benefits. The findings of this study based on a literature survey indicate that: (i) There is a relationship between hallmark events, such as the FIA Formula One Grand Prix Championship, and tourism. However, the increased tourism post the event may be exaggerated, either with regard to the percentage growth or effective period or a combination thereof. If increased tourism is the basis for the (ii) subsidy it should be noted that the Western Cape, in particular Cape Town, is already SA’s premier tourist destination. Whereas cities like Johannesburg and Welkom, that have existing motor racing facilities requiring upgrading, do not have Cape Town’s tourism icons. It could further be argued that the tourists visiting SA for the F1 GP event would more likely tour to the Western Cape than vice versa. (ii) Although the SA F1 Bid Company has provided indicative numbers with regard to job creation and expected tourists as a result of the event, they rely on industry norms and experiences with other current F1 GP event host countries rather than critically assessing the economic and social impact of the event in a South African context. The overall lack of a detailed economic impact assessment and the reluctant feedback from the Government has made it impossible to assess conclusively whether the event will have positively or negatively impact on South Africa. However, literature sources reveal that in the majority of cases and mainly for the government partner, the hosting mega sporting events do not yield a profitable return. (iii) TABLE OF CONTENTS Page(s) GLOSSARY OF ABBREVIATION ........................................................................... VII 1. CHAPTER 1: INTRODUCTION .......................................................................1 1.1 Background......................................................................................................1 1.2 Problem statement...........................................................................................9 1.3 Purpose of research.......................................................................................10 1.4 Demarcation and scope of study ...................................................................11 1.5 Research methodology ..................................................................................12 1.6 Chapter outline ..............................................................................................13 2. CHAPETER 2: SPORTS AND TOURISM LITERATURE REVIEW ...............15 2.1 Introduction ....................................................................................................15 2.2 Sports industry...............................................................................................15 2.3 Sports-tourism interrelationship .....................................................................30 2.4 Hallmark events .............................................................................................34 2.5 Conclusion .....................................................................................................35 3. CHAPETER 3: ECONOMIC IMPACT ASSESSMENT OF SPORT FUNDING LITERATURE REVIEW .................................................................................36 3.1 Introduction ....................................................................................................36 3.2 Economic impact analysis..............................................................................36 3.3 Multipliers.......................................................................................................40 3.4 Real EIA Findings ..........................................................................................42 3.5 Hallmark motorsport events in SA .................................................................47 3.6 EIA recommendations....................................................................................50 3.7 Conclusion .....................................................................................................51 4. CHAPETER 4: SPORTS AND RECREATION IN SOUTH AFRICA LITERATURE REVIEW .................................................................................54 4.1 Introduction ....................................................................................................54 4.2 Event hosting authorisation............................................................................54 4.3 South African Sports and Creation.................................................................54 4.4 South African Sports Commission bidding manual ........................................56 4.5 Sports tourism project....................................................................................57 4.6 Conclusion .....................................................................................................58 5. CHAPETER 5: SOUTH AFRICAN F1 BID LITERATURE REVIEW...............59 5.1 Introduction ....................................................................................................59 5.2 Public-private partnership ..............................................................................60 5.3 Place: South Africa-Cape Town.....................................................................63 5.4 Product: FIA F1 GP World Championship .....................................................65 5.5 Promotion: SA Bid competitors ......................................................................71 5.6 Price ............................................................................................................74 5.7 Conclusion .....................................................................................................78 6. CHAPTER 6: LESSONS LEARNT AND COCLUSION ..................................80 6.1 Introduction ....................................................................................................80 6.2 Lessons learnt ...............................................................................................80 6.3 Conclusion .....................................................................................................86 REFERENCES .........................................................................................................88 (v) LIST OF FIGURES Page(s) Figure 2.1: 20 Years of international arrivals. ........................................................ 25 Figure 2.2: World international tourist arrivals - 2004 and projected...................... 27 Figure 2.3: International Arrivals to SA, 2004 ........................................................ 28 Figure 3.1: Event spending flow........................................................................... 52 Figure 5.1: Countries which have had F1 circuits .................................................. 60 Figure 5.2: Western Cape Tourism Experience..................................................... 64 Figure 5.3: Travel time from SA Johannesburg to other major world cities ........... 65 LIST OF TABLES Page(s) Table 1.1: 2004 FIA F1 World Championships Calendar ....................................... 3 Table 1.2: FIA F1 World Championships hosting cost and continents ................... 5 Table 2.1: Top nine world tourism earners ........................................................... 26 Table 2.2: Foreign tourist spends in SA (excluding airfare, pre-paid .................... 29 Table 3.1: Economic Impact

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